The Old Way Backward
By Robert Romano
Whenever a happy band of Marxists proclaim a “new” way forward through the nationalization of the financial system, just remember what Karl Marx advocated for more than a century ago: “Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”
This is not a new idea. At all.
Nonetheless, this past Saturday, dozens of retirees and college students nationwide donned their pink scarves, feather-tipped caps, and anti-Bush t-shirts to serve as useful idiots for an agenda whose only other constituency are a bunch of pencil-pushing, power-hungry bureaucrats at the Treasury, Federal Reserve, and the International Monetary Fund, Paul Krugman, and a posturing demagogue in the White House. As ALG News previously reported, these radicals were attempting to steal the thunder of the tea parties scheduled for tomorrow.
In short, the protesters from a radical outfit calling themselves “A New Way Forward”—a loose coalition of Iraq War protesters, enviroradicals and socialists—want the U.S. financial system “temporarily” nationalized.
Of course, this would come atop the already-nationalized mortgage “industry” via government-operated Fannie Mae and Freddie Mac, the TARP-dependent banks and investment firms, and the some $11 trillion in FDIC assurances, Federal Reserve “loans”, “stimuli” and other bailouts, handouts, and kickbacks by the federal government in the past year.
Apparently, the protesters would go a step further and seize all financial institutions currently on public assistance—banks, creditors and other firms—liquidate the shares, and then “sell” them. This would, in reality, be the end of private enterprise in America.
Interestingly, the only thing the protesters—that judging from the pictures were either under 30 or over 60—are not interested in is reducing the government's level of interventionism. To be sure, they had signs or demonstrations calling for, amongst other things, to “Tax the Rich!”, jail the CEO's, and hang the bankers in effigy. One can almost hear Alexander Alexandrov's national anthem in the background.
They may just need to be patient. Should the latest $3 trillion bank bailout scheme by Barack Obama and Timothy Geithner reach critical failure, the current Administration will perceive no choice other than nationalization.
It may be coming sooner rather than later. Writes the nationalization movement's intellectual figurehead, Paul Krugman, “To end their zombiehood the banks need more capital. But they can't raise more capital from private investors. So the government has to supply the necessary funds… But here's the thing: The funds needed to bring these banks fully back to life would greatly exceed what they're currently worth.”
Therefore, Krugman proceeds further into the breach and advocates the ultimate bailout: “When the FDIC seizes a bank, it takes over the bank's bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that's exactly what advocates of temporary nationalization want to see happen, not just to the small banks the FDIC has been seizing, but to major banks that are similarly insolvent.”
Krugman has no idea how much it would cost to do this. Nor do the dozens of idiot protesters on the sidewalks who think it's a good idea. In fact, he would foolishly be opening the Hell gates for the government to cover the nation's entire liabilities: more than $55 trillion. Why?
Because the seizure of the nation's major financial institutions would have severe economic and financial repercussions. It would cause a string of bank runs. It would rock the parts of the markets that are publicly traded. It would terrify the American people who would rush to withdraw their savings or replace it with something tangible like gold.
All of which would force the FDIC to make good on all of its assurances to depositors and others. Which, of course, it cannot.
And the further the government proceeded to cover the losses, the more private capital would withdraw from financial institutions in the U.S.
The federal government cannot as projected even keep its current promises to finance Social Security, Medicare, and other entitlements this century—let alone guaranteeing every mortgage, deposit, loan, pension, and investment in the nation. Once seized, major banks will not return to solvency—because they will then be “owned” by the most insolvent institution in the world: the U.S. government. By then, the government would have to lend the money to individuals in the “private” sector to purchase any of the assets back from the government.
Of course, by then the bureaucrats would realize that to keep up with the rapidly escalating tab for the “temporary” nationalization would require an unbridled expansion of the monetary base.
All of which would eventually lead to yet more staggering inflation, making treasuries an even less attractive asset for foreign creditors to purchase. Already, China is slowing its purchase of treasuries, as reported by the New York Times while the Federal Reserve is increasing its purchases of U.S. debt. Meanwhile, the federal budget, the deficit nor the debt have never been so large,
After “temporary” bank nationalization, the dollar will be even less viable, because all productive assets will have been swallowed by the government.
The more centralized credit becomes in this country—as advocated by Marx—the less possible it becomes for the private sector to generate wealth, and the more enslaved the people become to the government that becomes the sole arbiter of “prosperity.” Unable to pay back its national debt and no means of raising revenue, the U.S. will become a satellite nation.
Which may be what the socialists—whether on the sidewalks or in the bureaucracies—really have in mind.
Robert Romano is the Senior Editor of ALG News.